Can an MCA be secured by equipment? Equipment liens and cross-collateralization

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The default MCA structure: receivables-secured, not equipment-secured. By design, MCAs purchase future receivables. The funder's primary security is the receivables stream itself, perfected via UCC-1 filing on 'all accounts, accounts receivable, payment intangibles, deposit accounts, and proceeds.' Equipment is typically NOT the intended collateral. If a funder is asking for equipment lien, ask why — it's a non-standard request.

The 'all-assets' UCC trap. Many MCA funders file UCC-1 statements with broader collateral descriptions than the contract specifies. A common scope: 'all accounts, equipment, inventory, fixtures, instruments, chattel paper, general intangibles, and all proceeds.' This is far broader than receivables and effectively makes the funder a secured creditor against essentially all business assets including equipment. The discrepancy between contract text and UCC filing scope is one of the most common merchant complaints in the MCA space.

Why funders file all-assets liens. (1) Cheaper to file once with broad scope than amend later. (2) Stronger position in bankruptcy proceedings. (3) Discourages other lenders from filing competing liens. (4) Provides leverage in default negotiations (threat of equipment seizure is real). (5) Industry-standard practice that merchants rarely push back on. None of these reasons benefit the merchant — push back if the contract is receivables-only but the UCC filing is all-assets.

When MCAs are explicitly equipment-secured. Some specialized funders structure deals as 'MCA + equipment lien' or 'asset-based MCA' where equipment serves as additional or primary collateral. This is more common for: (a) Equipment-heavy businesses (trucking, construction, manufacturing) where receivables alone don't support the advance size. (b) Larger advances ($500K+) where funders want diversified collateral. (c) Marginal credit profiles where equipment collateral compensates for weaker receivables history. In these cases, the equipment lien is documented in the contract, not just the UCC filing.

Cross-collateralization concerns. Cross-collateralization means the same equipment secures multiple obligations. Common scenario: you finance equipment through Equipment Lender A (who has a perfected purchase-money security interest in that specific equipment). Then you take an MCA from Funder B who files an all-assets UCC. Now Funder B claims a security interest in the same equipment, subordinate to Lender A's PMSI. In default scenarios, both lenders may attempt to liquidate the equipment, creating complex priority disputes. Cross-collateralization can also occur within a single funder's product family — if you take an MCA AND an equipment loan from the same funder, the funder may cross-default and cross-collateralize all products.

How to check what's actually filed. Search your state's Secretary of State UCC database (most states $5-$25 per search, some free). Look up your business as 'Debtor.' For each UCC-1 filing, review: (1) filing date, (2) secured party (funder name), (3) collateral description (the critical field). If you see 'all assets' or 'equipment, fixtures, and inventory' on a filing from your MCA funder, but your contract only mentions receivables, you have a discrepancy worth addressing.

Demanding contract alignment. If UCC filing scope exceeds contract scope: (1) Email the funder citing the specific discrepancy. (2) Request UCC-3 amendment to narrow the collateral description to match contract terms. (3) Most reputable funders will amend without dispute — broad filings are often clerical defaults, not malicious. (4) If the funder refuses, document the refusal and consider legal counsel. (5) Aggressive funders who refuse to amend are signaling future behavior; consider whether to proceed with the relationship.

Protecting mission-critical equipment. (1) Title critical equipment through a separate legal entity (e.g., equipment-holding LLC that leases equipment to operating company). MCA funder of operating company doesn't reach equipment in separate entity. Requires careful structuring and bona fide separation. (2) Sale-leaseback critical equipment to a leasing company before taking MCA, converting equipment ownership to a lease obligation. (3) Negotiate explicit equipment carve-outs in the UCC filing — funder accepts receivables-only lien and excludes specifically-listed equipment. (4) Take the MCA from a funder with strict receivables-only practice (rare but exists). (5) Use a smaller MCA from a funder you can negotiate with rather than a larger MCA with broad lien terms.

Equipment liens vs UCC liens on equipment. (1) Equipment loan / PMSI: financed lender has a specific lien on the financed equipment; perfected at filing; senior to subsequent UCC filings on same equipment. (2) MCA all-assets UCC: junior to existing equipment loans (PMSI takes priority); senior to subsequent equipment loans unless those subordinate or pay off the MCA. (3) Multiple MCAs with all-assets UCCs: typically first-in-time wins priority. (4) Tax liens (federal or state): can leap-frog certain UCC liens; consult tax + UCC counsel.

Risk scenarios. (a) Default scenario: MCA funder with all-assets UCC can attempt to seize equipment, though seizure of operating equipment is rare in MCA collection (litigation costs exceed equipment liquidation value typically). More common: funder uses lien as leverage to force settlement. (b) Refinance scenario: any new lender will pull UCC. Active all-assets UCC blocks most new financing until subordination or payoff. (c) M&A scenario: business sale requires lien clearance. Active equipment lien delays close and reduces sale value. (d) Equipment replacement scenario: replacing financed equipment can be complicated if existing lien claims the equipment.

Bottom line: standard MCAs should be receivables-secured, but many filings are broader. Audit your existing UCCs, demand contract-aligned filings, and structure asset ownership to protect equipment from cross-collateralization. Don't accept 'all-assets' lien language casually — it constrains your future financing flexibility for the duration of the advance and beyond if termination isn't filed promptly.

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